The US further tightens its ban. Has Huawei's path to purchasing chips from abroad been cut off?

On August 18, the official websites of the U.S. State Department and Commerce Department respectively issued statements to further tighten restrictions on Huawei's access to U.S. technology and added Huawei's 38 subsidiaries in 21 countries and regions around the world to the "Entity List", aiming to crack down on Huawei's acquisition of commercial chips.

A new separate requirement has been added, which shows that when Huawei and its subsidiaries on the Entity List act as "buyers, intermediate consignees, final consignees or end users", the company must obtain a license. In addition, products based on US software and technology cannot be used to manufacture or develop parts, components or equipment produced, purchased or ordered by any Huawei subsidiary (on the Entity List).

This regulation is a refinement of the second round of US bans on May 15 this year, which is intended to further restrict or prevent Huawei from manufacturing or purchasing chips. US Secretary of State Mike Pompeo wrote that the rule change "will prevent Huawei from circumventing US regulations by alternative chip production and providing ready-made chips produced using tools obtained from the United States."

U.S. Commerce Secretary Wilbur Ross said in an interview: "The new rules clearly state that any use of U.S. software or U.S.-made equipment is prohibited and requires a license." The new measure will take effect immediately, further narrowing the scope of Huawei's external chip procurement to circumvent the U.S. ban.

A Taiwanese analyst told reporters: "The new regulations of the US ban may directly target third-party design companies that may sell chips to Huawei. It can be said that Huawei's way of purchasing chips from outside has been cut off, because the regulations have made it clear that all chips containing US technology need to apply for a license from the US Department of Commerce if they want to trade with Huawei."

Previously, the second round of US ban on May 15 targeted TSMC's production of Kirin chips for Huawei, and Yu Chengdong has also admitted that TSMC will stop supplying Kirin chips after a 120-day buffer period on September 14. The Huawei Mate 40 series is likely to be the last mobile phone equipped with Kirin high-end chips.

Although SMIC has successfully manufactured the 14nm Kirin 710A chip for Huawei, SMIC pointed out in its June Science and Technology Innovation Board prospectus that in response to the product rules revised by the U.S. Department of Commerce in May, semiconductor equipment and technology imported from the United States need to obtain corresponding licenses before they can manufacture products for customers on the Entity List. This "implies" that they will not violate the U.S. ban and continue to manufacture Kirin chips for Huawei.

Huawei is trapped by the US blockade of chip manufacturing and has no choice but to vigorously purchase chips from third-party chip manufacturers. According to the news from the industry chain, Huawei has previously increased its chip orders from MediaTek. Facts have proved that from the series of mid-range models recently launched by Huawei, MediaTek's Dimensity 800 series chips have been fully introduced. There are even rumors that Huawei has ordered 120 million chips from MediaTek, but MediaTek has not responded positively.

Qualcomm is currently jealous of Huawei's mobile phone chip market under the ban. On July 30, Qualcomm had already resolved the patent dispute with Huawei. The two parties signed a long-term patent agreement, and Huawei will pay Qualcomm $1.8 billion in patent back payments in the fourth quarter.

The resolution of the patent dispute has paved the way for Qualcomm and Huawei's business cooperation in 5G. Qualcomm is lobbying the US government to lift restrictions on US companies selling chips to Huawei and has submitted a license application to supply Huawei.

Previous analysis showed that although Huawei cannot manufacture its own Kirin chips, it can still obtain chips through external purchases. However, under the premise that the United States further strengthens the ban and adds rules, it seems that this road has begun to be "blocked" for MediaTek, Qualcomm or other third-party chip manufacturers to supply Huawei.

Chen Yang (pseudonym), an industry analyst, told reporters: "The U.S. Department of Commerce is trying to expand the scope of supervision to all physical companies that contain U.S. software, equipment, and technology, in order to prohibit business dealings with Huawei and any of its entities. It can be said that this time the target is directly placed on the level of Huawei's outsourced chips."

In response to the new regulations added to the ban, MediaTek issued a statement today (18) saying that the company complies with global trade laws and regulations, is closely monitoring changes in US export control rules, and is consulting external legal advisors to obtain the latest regulations for analysis in a timely manner to ensure compliance with relevant rules. Based on the assessment of existing information, there will be no significant impact on the company's short-term operations.

Affected by this, MediaTek's stock price showed signs of decline, and the market generally expressed concerns. The industry previously believed that MediaTek's supply to Huawei should not be too optimistic, because everyone believed that the details of the US ban had not yet been confirmed and the risks were still great.

Analyst Chen Yang believes: "From the new regulations, the US government has begun to supplement and confirm the details of the ban, and its purpose of preventing Huawei from manufacturing and purchasing chips has become increasingly obvious. Although the details do not clearly define which category is Basic, whether third-party chip manufacturers such as MediaTek are included in it still needs further confirmation, but this may be a matter of time."

Among the world's current semiconductor manufacturing equipment manufacturers, the United States occupies three of the top five, and the remaining two are Japan and the Netherlands. The United States also dominates the field of materials, not to mention the EDA software used in chip design. The United States' advantages in the fields of upstream semiconductor materials, equipment, and software are unquestionable. Whether Huawei is currently manufacturing its own Kirin chips or purchasing chip products from third-party chip manufacturers, the possibility that they do not contain American equipment, software, and technical elements is almost "zero" at present.

"The escalation of the ban this time can be said to be gradually filling in the previous loopholes, and it will become increasingly difficult for Huawei in the future," said analyst Chen Yang. "However, variables still exist. It depends on how Huawei or the Chinese government negotiates with the US government, and of course, the situation after the US election in November, so the game is always there."

Facing the difficulties in chip manufacturing, Yu Chengdong's speech at the 2020 China Information Technology Hundred People Summit was titled "Working Solidly to Win the Next Era". Huawei did not back down, but took root in semiconductor companies in all aspects. However, reshaping the supply chain is not a simple matter. Currently, design and manufacturing work are scattered in Europe, America, Japan, South Korea and other regions. They cannot be transferred casually or in a short period of time. Semiconductors are already a global industry.

Unlike 5G, Huawei can support 5G through its own efforts, but the semiconductor industry is large in scale, covers a wide range, and has a long development cycle. If Huawei alone is relied on, it is impossible to open up all links in the industrial chain. Jiwei.com believes that the domestic semiconductor industry chain needs unity, but it does not mean closure.

Of course, we don’t need to over-interpret the upgrade of this ban. Whether it is upgraded or expanded, this is a measure taken by the US Department of Commerce. After all, we need to look at the ultimate goal behind this measure. Judging from the current situation, Huawei has made many plans in advance to deal with the US ban. It is believed that the chip reserves will not affect its business in the short term, and a protracted war is inevitable.

Negotiation is still the best way to solve the difficulties faced by Huawei and even the Chinese technology industry. "Extending the buffer period will give Huawei and its Chinese semiconductor supply chain more time to reshape and overcome difficulties."

On August 18, the official websites of the U.S. State Department and Commerce Department respectively issued statements to further tighten restrictions on Huawei's access to U.S. technology and added Huawei's 38 subsidiaries in 21 countries and regions around the world to the "Entity List", aiming to crack down on Huawei's acquisition of commercial chips.

A new separate requirement has been added, which shows that when Huawei and its subsidiaries on the Entity List act as "buyers, intermediate consignees, final consignees or end users", the company must obtain a license. In addition, products based on US software and technology cannot be used to manufacture or develop parts, components or equipment produced, purchased or ordered by any Huawei subsidiary (on the Entity List).

This regulation is a refinement of the second round of US bans on May 15 this year, which is intended to further restrict or prevent Huawei from manufacturing or purchasing chips. US Secretary of State Mike Pompeo wrote that the rule change "will prevent Huawei from circumventing US regulations by alternative chip production and providing ready-made chips produced using tools obtained from the United States."

U.S. Commerce Secretary Wilbur Ross said in an interview: "The new rules clearly state that any use of U.S. software or U.S.-made equipment is prohibited and requires a license." The new measure will take effect immediately, further narrowing the scope of Huawei's external chip procurement to circumvent the U.S. ban.